I learned a long time ago that, if I wanted to be successful at investing, I needed to keep my emotions in check. Sometimes, that’s easier said than done.
As human beings, our behavior and decisions are influenced by many psychological factors. We all have deep-seated biases and experiences that serve us well in our day-to-day lives but may have the opposite effect when selecting our next financial move.
Here are a few steps to help overcome a strong emotional reaction to investment worries.
- Accept that emotional reactions to finances are completely normal. Financial stress can activate the “fear center” of your brain known as the amygdala. This part of our brain is hyper-focused on survival which can drive us to make fear-based decisions instead of thinking through our options. When the stock market is showing signs of volatility, we may be inclined to make impulsive decisions. But it’s important to remember the age-old saying, “buy low, sell high.” If you find yourself feeling anxious, take a step back and realign with your long-term investment strategy.
- Rely on market history. Historically, stocks in the S&P 500 have trended upward over the past 90 years. When you’re overwhelmed by stock market news, remind yourself that it’s completely natural for the market to ebb and flow.
- Refrain from following the crowd. Although it may seem like everyone else is selling during an economic downturn or buying when stock prices rise, take stock in your unique financial plan. The market is unpredictable and no one is able to time market trends perfectly—which is why it can be dangerous to just follow the pack. If you’re feeling pressure to make investment decisions based on what others are doing, otherwise known as the herd mentality, meet with your financial advisor to review your investment goals together.
Make better financial decisions for your future by understanding the role that emotions play in investing habits. Get through challenging times by focusing on a long-term investment plan—and not following the herd—to leverage your money more effectively for future gains. The market is always fluctuating. Keep your eye on the horizon to invest with confidence.